Good morning. We wouldn't be a Swiss company not starting before time. Thank you for all being back after the coffee break. I really hope that you had an interesting, insightful, and enjoyable one and a half days with us here in Switzerland, that we could share with you some important aspects of our nutrition, health, and wellness agenda. Also with the Nestlé Nutrition journey that Luis Cantarell has shared with you. It is indeed, if you see our roadmap, we have been sharing with you the roadmap in many, many occasions already, if you see the roadmap, actually, the whole roadmap is centered around the nutrition, health, and wellness agenda. What does that mean? Because these words, nutrition, health, and wellness, what do they mean?
At the end, we are a company about offering tasty and healthier food and beverage choices to consumers, and encourage them to have balanced and healthier lifestyles. Ultimately, by doing so, helping them to care for themselves and for their families. That is what we're all about. I cannot stress enough the importance of that line in the sense that the whole organization is focused and centered around this. On the other side, too, it is indeed, we are Nestlé. We are all about quality of life and nutrition. The relevance of that is the value that it creates. First of all, it defines of what we are. It defines our DNA from the start. It defines what we live for as a company. It drives also the competitive advantage.
The competitive advantage of differentiation, of building more arguments, being ahead of the curve, driving our R&D, and at the end, creating our brand value. That is what drives then also the business value. It also addresses the nutritional needs, be it personal or from society, that is increasingly visible in our society and asked upon for, and also challenged towards the company. It is how we link, in other words, how we link as a company with society, Nestlé and society, and how we have called that Creating Shared Value. At the end of the day, it is the agenda of nutrition that drives profitable growth. Through profitable growth, shareholder value. The value of that agenda cannot be stressed enough.
That is something that we make permanently explicit, that we embrace also much more forcefully in the whole organization, in our R&D definition, where we're going to put our resources behind. We find that agenda of nutrition, health, and wellness in the normal food and beverages that we have. We find it back also in the nutrition that we have for people with specific needs, and we have been sharing some of that, and I'm going to go back to this in a few moments. We also have that reflected in the Nestlé Health Science initiative where we definitely believe there is some great value in that potential, in that market opportunity or market opportunity that is in the making. Luis Cantarell has shared with you this journey.
A journey that started 150 years almost ago, that we intensified and have made more specific by establishing Nestlé Nutrition. How that has evolved and how thereof came certain decisions that are very meaningful for the future. We are also having shared with you this, in order to have a healthy and fulfilling life, it all starts with birth and even before that. How then also Heiko Schipper has shared with you this first 1,000 days and how we are embracing this. At the end of the day, it is for a company going back to its roots. We started with infant cereals, and we have been close to infants and babies ever since.
How we embrace this in a holistic way and how we also are engaging and deepening our presence in the world through also the very meaningful Wyeth acquisitions, where our friend Russomanno has shared with you where we stand, what it means, what the intrinsic values are, and the drivers of the success of that company. Then also with the example of the huge potential in the world, showing through the presentations of John Tang and James Chu on Nestlé Nutrition China, which is example of how big the potential is in many, many other markets where we were not so engaged only a few years ago. That same thing that we see in China is going and is repeated in the Africas of this world and the Indias of this world. The potential is huge.
The other part that you saw with Thierry Philardeau is that's the first 1,000 days, and we're going to embrace this. There's a lot of potential there. How we're going to organize this through infant formulas, infant cereals, and baby food. Yet at the same time, in the society, in the aging society, there's huge opportunity for adult and healthy aging nutrition if you want. There's link with this Good Lifers what he calls it. A huge potential that is on specific aspects of the nutrition, health, and wellness that we have focused on the last days. Luis Cantarell has shared with you the Nestlé Health Science journey. It's now two years that we have started this initiative that came out of healthcare nutrition that we had in Nestlé Nutrition.
We have put that at arm's length, have shared that with you why, basically the reason why we have done that with a specific governance is that the focus we have in food and beverages to drive our nutritional agenda is very sharp. The alignment we have with the whole organization is very, very strong. That creates so much gravity of focus and alignment that whatever you want to explore that is a little bit further out in time has no chance of really flying. That's why we have set up that organization, he reflected the effect and the consequences of putting that with a specific governance. We have quite a few new people coming in there. We share value. We are 120 plus people now in that organization, more than half of them are from the outside. Why? Because this is another ballgame.
This is another platform. It drives, and it is under the same roof of nutrition, health, and wellness, but it goes further. Also the science is different. The new science that allows us to go after that opportunity is different, and that's why we have set up Nestlé Health Science. We, I hope, shared with you the journey of building, defining, and driving this initiative. Also have shown with you the battles we have picked because that's a world when you start there, you have an amazing amount of opportunities to go after. You have to pick your battles, and we have defined there basically three existing platforms and three new ones that are going to be driven by the Nestlé Institute of Health Sciences. As I said, that was the first day.
Nestlé is all about quality of life, what more important in quality of life of food safety. That's an issue that through the world of today, John O'Brien has shared that with you. In the world of today, food safety and quality is of paramount importance. It has been always important, but it is now so much visible and present in people's minds, also in societies and regulators, et cetera. That is something that we have embraced always because we always told you that the biggest or the most important dimension that we have to care for is trust. Trust starts with delivering on your promise. That promise is quality and safe food. That is something we have been managing quite intensively. We have been more explicitly building capabilities there. The world has changed. The supply chains are more complex.
We are operating in all parts of the world. We have built and strengthened our safeguards there, called Safe by Design and Safe by Control, that combination. We have also a very strong early warning system that is very important in a globalized, interconnected world as today. We are measuring our compliance to these rules, and we are measuring our performance. He spoke about more than 100 million tests that we do year over. That is quality of life. It's linked with food safety. Quality of life is also linked with what we do with our environment, that was a little bit of walkthrough that we wanted to share with you here on this floor. Sustainability is not an add-on for us, you may have heard that before, but it is really embedded in how we do business.
It is so closely linked with our Creating Shared Value that we as a company, whatever we do, we have to have respect. Respect, if you want to think about one word that is on the base of all of our principles and values, it's respect. It's respect for other people, respect for other cultures, respect for the future. Respect for the future equals environmental sensibility and priority. I hope we could also share a little bit with you how that is intimately linked with how we do business, be it in the supply chain, be it in our factories, be it also how we connect with society through efficient supply chains, et cetera. I think this was the meaning of setting up that program.
First of all, they're showing some aspects, very important aspects of our nutrition, health, and wellness that underlines again the importance of that agenda and what we are as a company, what drives us, where we put our resources behind, but also what creates our value and at the end, shareholder value, and also the respect we have for nature and environment, and also for food safety and quality. Now, if you want to be successful, and that brings me to another point, if you want to be successful over time, you have to perform over time. Therefore, you have to have as an organization, with the complexity we have as an organization, you have to have a very clear strategy. That is, again, I'm talking about the roadmap.
I can only stress again the importance of the roadmap that we have now for five years, how that has helped us to steer through these troubled times, because at the end of the day, it's more or less exactly five years that some trouble started in our society and our world. It is that clear view on what we want to stand for, what the reason and strategic direction of this company is, and having that set up on the one page that aligns the whole organization. It has given us purpose and has shown us always where the journey could lead us to. I spoke then afterwards also in this company of the need for acceleration. The need for acceleration in the sense of we are a company that goes with a certain pace. We secure our steps. We don't do stupid things.
In that sense, we have quite a few Swiss qualities. In the world today, we have to accelerate. We have to put fast execution behind our strategic direction. That is what we call then this whole sense of urgency. Then it is not a matter of only going faster or fast, it is going faster. Then we spoke very explicitly internally about this competitive intensity and winning. It is not just doing good and being best in class in Nestlé, it is best in class in industry. To do that at every part of the value chain. That urgency, we have been building that in our organization, faster decision making, et cetera. Also fast moving to market of good and new ideas. That was a little bit the keywords that we have used the last years. Then we spoke about this new reality too.
We spoke about winning in the new reality. The new reality, you know all the characteristics of the new reality. Actually, what the crisis did was many underlying trends of the emerging markets floating and coming up faster, the crisis in the developed markets and all what came with that, the price sensitivity, aging population, the demographics that changes with that, all this, we are really living in a new reality. We spoke about facts in that new reality with that roadmap that we challenge every year. We always check our roadmap if it still stands, but it stands. We need to have some priorities specifically linked with the new reality. One of these, the first one was, and I have shared it with you, was making choices, and making tough choices sometimes. That was the first one. I'm going to go back to this.
The other one was grasping opportunities and all this turbulence of problems and challenges we see, I always believe there's an amazing amount of opportunities. We are actually privileged to live in these times because it's full of opportunities. Just think about what science allows us now to do, how we can create products and build nutritional arguments through new insights of science. There is an amazing amount of opportunities in the developing world that are really developing now on their own terms, full of opportunities. It's a matter of seeing them and then organizing around them and getting after them. Second was grasping the opportunities. The third was valuing what the consumer values. It should be consumer-centric. That means also taking out what he doesn't, which is reducing waste in the system. There you start seeing then this whole Nestlé Continuous Excellence coming into it, too.
Really knowing, understanding, anticipating what the consumer really values. It's all about value identification, and organizing around that. That was the third one. More value than ever. Then we spoke also about this new reality where we have to engage as a company with communities and stakeholders much more intimately. We know that. We are a high tree catching a lot of wind. We always have, but this is just not getting better or we have to engage and we have to talk about ourselves. We have to be more transparent, that is something I think we have done more increasingly, the last years and to a certain extent, recognized for it. That is heartwarming, I must say.
We see also the meaning of a company like ours to be really part of society and to drive some parts of the discussions in society, not just living them. The fifth one was engaging digital. We normally as a company are a company that is sometimes just watching out a little bit, making sure steps in the new dimensions, but sometimes waiting. Digital goes so fast, we don't have that luxury. I said, we said as a company, we want to be a leading fast-moving consumer goods company in the digital world with two dimensions to it. There is this whole dimension of social media and how we engage there, and actually the fact that we have a Digital Acceleration Team here where we brought in talent from the markets, from the Nestlé markets, to really share and to learn this digital world.
As you can imagine, all young people with a different language, engaging with the digital world, engaging with consumers all over the world in another way. We have gone a long way in the two years that that is in existence now. We are rolling out. These people go back to their markets and are engaging their markets in that dialogue, in that conversation. That's the first part. The second part of digital is e-business. We do have very important aspects already and businesses in e-business, but I do believe we can engage more, more so because I truly believe e-commerce and e-business in general is going to be actually taking over from the developed world into the developing world. As you can see, the e-commerce is actually a way of bypassing deficient infrastructures.
We see their attraction coming, you see it already happening in quite a few big markets. I do believe there's an amazing upside for a company like ours to really engage there with the third parties who are interested in that. Having our own business to consumer businesses also deliver more efficiently and effectively. Embracing digital was the fifth one, priority we want to embrace and that we have on our agenda as a global organization, digital. The last one, the obvious one, is to have the best people. The best people has more meaning now because with the globalized world, with the world where business models are not unilateral from the Western world, you see new thinking coming in. How new ways of going about supply chains and all. You need diversity of talent.
It is to have good talent for absorbing growth, it's also to have good talent to have all the insights that you need to be successful in this changing world. I think if you think we have more than 90 nationalities already in this building, for example, in this headquarter, we have more than 90 nationalities. You see our general management with all the nationalities and cultures that we have there together. I do believe we have an advantage there, but we have still to drive it further. These are the six priorities if you want that we want to focus on. I want to go back to three of them. We spoke about making choices. We spoke about grasping the opportunities. We have spoken about also really understanding what the consumer values now and tomorrow.
If we embrace that with these three priorities, these three priorities have consequences and induces to action. I have personally on my agenda, there are three dimensions that I really want to share with you, and be more explicit that are high on my agenda list, on my agenda. The first one is strengthening our portfolio linked with portfolio management. You have heard that before. It's a tool or it's a way of going about analyzing and building transparency through this complexity of categories and markets. Basically, we have actually 1,800, I think, cells that we analyze on certain criteria, be it the strategic fit, be it also the resource need and allocation you have behind that or in other words, Return on Invested Capital and also the capability that we have in these categories to win, in other words, to grow profitably.
These are the basic criteria that we use. We judge all these cells, all these categories and markets, and all that. It creates consequences, in the sense that if something doesn't work, well, there's basically two ways to go. It is to fix it or it is just get rid of it. We have been a company that has, to a certain extent, a little bit of luxury, and I got enough feedback from you, Sai, to say we were a company that allowed quite a few of these underperformers to underperform for too long. That's on my agenda to make sure that is not the case anymore, because I do believe that if you allow that over a long time, you start to actually weaken the good businesses because they have to overcompensate for the weak businesses, and we're going to go after them.
That visibility that we now have creates shortlists, the shortlists are there, the action has to come. The timelines have to be wise, action will come. The portfolio management that we have been sharing with you over the last years, that has given us, because to implement it, has been embraced by the whole organization, has created quite a few shortlists, and we organize around that now with the right time frames. First, on my desk. Second one is resource allocation. At the end of the day, all what we do is getting results with the maximum efficiency of resource allocation. One of the big resource allocation that we have used the last years is CapEx, capital expenditures. I think that was the right thing to do.
The last three, four years, we have increased our capital expenditures quite intensively, quite heavily, above levels that we normally have, the cruising levels, as we call it. That was the right thing to do. Why? Because we saw acceleration of growth. We saw also acceleration of the emerging markets embracing new product concepts. Going from the classical bouillon cube to more sophisticated concept, you have to build the capacities and the capabilities in these markets. As you know, we are, by definition, a decentralized company, and food is to be produced as close as possible to where the consumers are. We have built these capabilities, be it in capacities. We have opened R&D centers because we felt also that the emerging markets have unexpected opportunities of driving and inspiring our whole R&D. We have built these capabilities, too.
In other words, we had, during the last three, four years, quite an impressive acceleration of capital expenditures. We want now to leverage that investment, to sweat the assets, as we call it. By that, we, for the future, for next year, for example, I want to cap capital expenditures, which is always a healthy thing to do sometimes, just cap it. It is amazing how creative people are to get their things done with the limited resources. I feel after three, four years, it's time now to sweat, to leverage the investments we've done. A lot of capital, a lot of cash went into that, we're going to sweat them now. We're capping, I would say, the capital expenditures for next year back into the normal cruising speed of between 4% and 5%.
That is basically more than 100 basis points less than what we have, for example, this year foreseen. That's the second one. Resource allocation efficiency, specifically capital expenditures discipline for next years and, I hope, in the years after. Right thing to have done investments in the last years. Then the third one is, call it structural efficiency, or call it going from managing complexity to mastering complexity. We are, by definition, by strategic decision, we are a complex company. We took a decision, we have taken decisions in the past to really be engaged in different categories. Creates different categories, be it milk, be it coffee, be it et cetera. That's certain complexity. We are engaged worldwide over, having operations almost in all every country of the world.
We have a fundamental belief that the best structure in food in our company is to be decentralized in decision-making. It creates some complexity. We have intrinsically, by strategic decision-making, a certain complexity in our landscape. That creates that decentralize, that creates the other side, size. Being in different categories, being in all these markets creates size. We have always worked to translate that size into scale, and scale into competitive advantage. Just think about R&D, for example. How many platforms we can roll out on different categories in all these markets? These are where we leverage size into scale into competitive advantage. We have defined different business models because we don't have one business model. You see examples. We have local managed businesses that are linked up with the zones.
We have regional managed businesses that are not in every country, but managed by zone, like, for example, Purina. We have Purina North America, we have Purina Europe, we have Purina AOA. We have global managed businesses like infant nutrition. You saw Heiko and then Luis. We have water, global managed businesses. What has driven the decision-making there was basically the generating demand. What is more driving that category? In certain categories, like infant formulas, it's clear that innovation, these are worldwide initiatives and roll-outs rather than, for example, soups or Nescafé, although a worldwide brand, strong worldwide brand, but we have 180 blends because coffee is so in taste and profiles, so local. We have these different models.
We have the strategic business units and the center, and the role of the center that we have defined, and then the role of the markets and how they are agglutinating the Nestlé presence through Nestlé in the market, where all businesses are coming together under one roof in spite of having different reporting lines. We have been driving over time through GLOBE Transparency, a major project 10, 15 years ago that started and has linked up that complexity through the transparency and the standardization of data and processes, and has brought us an amazing amount of possibilities of driving also the other side, NCE, that is driving through our operations efficiencies and goes after the waste I was talking about. That dimension is helping us. We're driving also NCE out of operations, beyond operations, so that we start building up a lean enterprise.
That comes to my point. Are we, after having established all these dimensions, the global managed business, the regional managed business, GLOBE, NCE, et cetera, are we on the top of our efficiency of a performance as a structure, as a company in decision-making, in the processes of decision-making? The rollouts of innovation, are they fast enough in this more globalized world? There are new means that are now technically there available. Are we still working the most efficient way? I do believe an organization like ours, it would be very pretentious and blind to say that we are on the top of our form. I think what we have done, it's like an athlete. When an athlete goes and he's performing, he's quite fit, but he's performing well. He goes to the limits of his lungs.
If he wants to go faster, he has to do something with the body. I think we are on the capacity of our lungs. There's so much upside still with the body. An organization like ours always stands, in spite of all best efforts, over time tends to a certain disorder. It is my personal initiative also to challenge that structure. Not structurally, but in the way it flux, the information fluxes, and the decision-making is made to reconfirm what I feel is good and to tweak and challenge what is not really working well. That is something we're going to do as an executive board. We're going to start thinking and processing and seeing and challenging how we are structured, what is working well and what is not, what can we do better. There is upside there.
The biggest upside for us is to have a much more flexible, more agile, crisp organization so that our decision making goes faster, that our responsibility definition is clearer, and that our rollouts of good ideas, the rollout of new products is faster, that we have processes that we don't have millions of emails hopping around and read by people who should not read them. There's so much upside. That we have shorter meetings. There's very many small little things that can be much better by this organization. I do believe that I'm not speaking about restructuring here. I'm not speaking about we're going to take so many people out. No, that's not the idea. The idea is to absorb the growth that we projected for the future on the same structures with a more efficient working method and interrelationships between.
I'm speaking about marginal getting better over time, but I do believe there's quite an upside here that is going to help us to be lighter in structure, lean enterprise, and yet at the same time, faster. I have basically, we have the roadmap. We have six priorities. I shared them with you in two, three occasions already. I have three things on my desk, and that is definitely actions coming from portfolio management. The second one is CapEx discipline or CapEx capping discipline. We always had discipline in CapEx, but that has to happen because I do feel we have done a major effort with shareholder money, investing in our structures, in our capacities and all that. Now time to leverage that and spread our assets. Capital efficiency is definitely linked to that. Then the third one is structural efficiencies.
It's from managing complexity to mastering it, and there's some upside there, too. These are the three things I wanted to share with you, and they're very high on my agenda. These are things we're going to work on in the next months, years, and we are very much aware of the upside there that we're all going to enjoy, I'm sure of. With that, I think I didn't want to make such a long introduction, but we're open for questions now, please.
Patrik Schwendimann from Zürcher Kantonalbank. I have two questions. Firstly, a Dutch colleague was mentioning yesterday a slowdown in the emerging markets in quarter 3. I know Nestlé already had a slowdown one year ago, but what are your expectations here for the emerging markets for Nestlé? Secondly, regarding your stake in L'Oréal, I know all the options are open for you, but let's assume you would sell the stake and would do a major share buyback. What would justify such a move? Thank you.
First question, slowdown of emerging markets. That's something we said already a year ago. These slowdowns are not all of a sudden, you wake up in the morning and they all slow down. It is not that the emerging markets are all orchestrated to slow down at the same time. That reality, we are so capital in the market that we actually a very good barometer of what's happening in the world. We were quite early to see these signs. In many markets, it's a slowdown that I would say is, to a certain extent, healthy. I'm the first to say, and I have shared with you, when China or another country grows 12, 13, 14, 15% several years in a row, that overheats the engine. There is some structural dimensions that should play then.
You see the authorities there structuring the playing field a little bit in China. That, in my eyes, over time, is healthy. If you have a region like the Middle East and certain countries being in war, that's not very healthy. That's part of our reality. We have shared with you how an anchor factory in Syria that we had, that was working until a few months ago, that was blown apart and looted. It's not operational anymore. That was actually a factory that was also supplying the region. We are rewiring now, investing in certain other factories in other countries. That's the emerging markets. We say the developing markets where I hope to get some more colors back.
These were the words we used in North America and Europe, it takes a little bit longer, North America is a little bit lukewarm, Europe is longer because it was structural. No surprise, that's reality. What is important for a company like ours is to drive the right innovation, renovation agenda to winning in the marketplace, is to grow faster than the market and with the agenda that you want to drive and not be driven by. I think that is how we measure ourselves. The emerging market is a little bit slower than before. That's why also we said at the beginning, we're not a company that's emerging markets now. We have always said, no, we are an and company, developed markets too.
We have really focused a lot and invest a lot in market and consumer spend behind our brands, and innovation to maintain all parts of the world. At the end of the day, the emerging markets are very important, and in short time, they're going to be 50% of the world economy. All right. Still only 50%. You better don't limit your playing field on 50%. We really engage overall. Our growth, I would say also, you see less pricing in that growth we have, and that's good, I would say. You have less input costs.
You may remember also when input costs skyrocketed, you say, "Are you pricing to the highest level?" We say, "No, they're going to go down one day because we see underlying lines there and try to be right there." We have quite a little bit of visibility of how these trends go. We have less pricing need because of input cost reduction or you have less pricing in your growth. That's normal. That's what we have. What for me is important is RIG taking up , and that is underlying really the strength of our growth. It's quality growth, it's balanced growth, it's all over the world. With weak points, I must say the consistency and the spread of our growth is healthy. Emerging markets, some are accelerating, putting the right things in place to accelerate.
Africa is still going on with its 40-plus countries, some are accelerating, others are a little bit slower. All in all, it's a continent that goes 5%-7%. Latin America is challenged a little bit. You see, I don't have to give many examples, Brazil, you see some inflation coming back, devaluation. I lived in Latin America for a long time, I know what I'm saying there. It's far from what it was used to be. More stabilizing dimension in these countries that allows really then in the long term to be a very interesting place to be. That's how I read it. We were quite early in seeing it happening, coming in, and we are organizing, and part of the capital expenditure discipline that we're speaking about is linked to that.
We have our capacities now, we have to spread them, and we're happy we did it at the right time. On the other question, L'Oréal, you just said, all options are open and no more comments.
All right, David Hayes from Nomura. Can you just talk about how you're going to balance the risk that as you get the organization to focus on capping capital intensity, working capital, which you've talked about as well, that you're not suffocating the business in terms of seeking growth, and that as things are getting more difficult to your previous answer, you making it even more difficult for Nestlé to hit the mantra of the Nestlé Model? Thanks very much.
Let me share with you. The Nestlé Model, as we all came to name it, is a dimension of consistency over time. The Nestlé Model, because the model perceived profitable growth and capital efficiency as the first hour in business school. That's what companies should do. Top line, bottom line capital efficiency. The Nestlé Model is we try to have consistency, and consistency is over years. The consistency is not every quarter, every year, specifically per se, but the line we want to walk is 5%-6% growth, and the margin increase that we want to have is part of that. If you see also, the margin we want to have is not because we want just more margin. We do believe that the business model and the strategic direction we have is at a value direction.
You should see that coming into margins. Capital efficiency was always there, but we're giving that more privilege now and being part of the decision-making process in a more explicit way, not only on an aggregated way, but in a cell-by-cell way. That is where portfolio management comes in. We don't privilege one or the other. We are an end company again. I do believe that when you stop growing, you're in trouble because then you're losing part of the relative size you have, you don't manage your own agenda, your innovation and renovation is not fruitful, and frustration in your company, the morale of the troops is very linked with growth, too. Overdoing growth and growth will grow at the expense of the future, no way. We can grow tomorrow very nicely again. On the back of the future.
We live in a society where too much has done already on the back of the future. We don't want to be there as a company. We've never been. We always have given that privilege to long-term perspective on things. We have an intensity for the short term. We deliver, always in perspective of time. The perspective of time, over time, over the years, is that line of 5%-6% growth margin increase linked with our strategy, capital efficiency, I have shared some ideas on that. That is linked again with investment. We have increased our consumer-facing investment because we feel we have more and more arguments built in our products. We have more and more innovation driving our growth. We have to communicate.
This balanced way of going about things, this not agonizing for small little things on the short term, but seeing underlying strength of a company and its growth, seeing the underlying pipeline that is going to come. Again, the pipeline is not every month the same impact of innovation. Sometimes you have more, accelerates, sometimes less. That all is actually the nicety of my job to see that all happening and orchestrating it in a harmonious way. Harmony is a strength for the future. Harmony is linked with not overdoing it now on the back of the future. We're not going to do that.
Warren.
Hi, it's Warren Ackerman at Soc Gen. I've got a couple of financial questions for Wan Ling. The first one is, you've signaled that CapEx is coming down, your more active portfolio management, and there's no transformational deals out there. That all sounds quite positive from a Return on Invested Capital point of view. I was hoping you could share some of your findings on Return on Invested Capital, specifically, what percentage of your invested capital currently is generating below WACC returns? Secondly, where do you think returns could get to on a 3 to 5-year view? What will be the biggest drivers of that uplift, hopefully, in the Return on Invested Capital? The second one is just on the restructuring charges. I noted that in 2012, the restructuring charges were only CHF 95 million on a sales base of CHF 90 billion.
That's only 10 basis points of sales in restructuring. Some of your peers are spending 100 basis points on restructuring. The question is, how should we view that negligible restructuring spend, and what do you think is the right level of restructuring? Does it go back to the 40, 50 basis point level? That's my two questions. Thanks.
You're welcome.
Yeah. Thanks, Warren. Let me go back also to what David had said earlier about balancing the risk of suffocating. I want to reiterate what Paul said earlier. When we think about portfolio and managing our portfolio more actively, there are really two sides to the coin. It is not just walking away from businesses that are underperforming, but also accelerating where we need to accelerate. So to David's question about will we be risking a suboptimal level of investment for future growth, that is categorically not the case, and that will not be the case because like I said, there are two sides to the coin. In terms of the review that we have done, the tool has been rolled out to 97% of our business, of our sales, and we obviously have clear visibility on how many sales are anywhere from value destroying to on the verge.
It's not a detail, Paul, that we're sharing broadly with the public. But clearly, like Paul said, it's not just an automatic assumption that if a sale or a category in a geography has not been doing well, it's not an automatic assumption that we're going to put it on the block. Rather, can we fix it? How long is it going to take? And if not, maybe this is just a business that we are not the best owner for, and therefore, we will walk away from it. In terms of the question on restructuring, I had alluded to this in the H1 call. Because of this portfolio, we are looking at some divestment. A lot depends on what, from a timing perspective, to the extent that we sell some businesses and we have to take some, or we have to do something from a restructuring standpoint.
Once the businesses go, so we have some retained costs that we have to deal with. I guess our guidance is we will improve margin, which is our Nestlé Model, year-on-year. And so obviously restructuring cost is a part of it, but we will manage it so that we deliver against our commitment of improving our trading operating profit margin.
Well, it would be a strange target. Well, let's have 30 basis points restructuring cost. But you are right, there was a certain level that we have, which is intrinsic to a business, but it does not have to be played every year. You have to do it in the right time. There was a time that we had a much higher restructuring cost. You may remember seven, eight years ago, we had a wave of restructuring because it comes always in blocks. But linked with efficiency and resource allocation, restructuring is part of that, too. What does not work, you fix it.
Eileen.
Hi, Eileen Khoo from Morgan Stanley. Two questions. One, it's encouraging to hear you talk about more active portfolio management. I was wondering what kind of scale are we talking about here? You've done your review. What % of businesses have you looked at that look like they're underperforming or could be in the hands of other owners? The second question is actually on local competition. I don't know if this is a fair assessment, it feels like in food particularly, the competition from local players seems to be more sophisticated and more aggressive lately. Would you say this is a fair assessment? Is this a threat for your pricing power long term? What are the steps that you're taking to make sure you stay ahead? Thanks.
The active portfolio management you speak about, first of all, the whole portfolio management is not with one objective alone in the sense of let's see what we divest. It's part of it, for me, the most important thing is to have the visibility of where should we fix certain things that are sailing under the radar screen for too long without being part of the party. That is what we are focusing on. Divestitures, we're going to have some. We're not going to give figures on this, as you can imagine. There are certain things that we can't see, although work on our strategy and all that, we cannot enjoy the business. We want to be in business, not in agony. If something doesn't really show it, well, we have to be sharp and say, "Okay, fine.
Let's put energy," not in evading the question, let's put the energy in getting the solution to the problem, that's happened. That will be the short list I'm speaking about. There's a short list also of fixing. The short list of fixing is slightly longer than getting rid of. We are business people. We want to do business, not getting rid of business. There are certain things that we don't see we can fix. Now, a very important comment on local competition. I'm the first to really acknowledge that food is local. We always say that. That's why we are decentralized as well. That means also many local players. Our competition, the classical big ones and the classical names and the classical, we have to be aware, and we are, that so much competition is coming from new places.
Not only local like we had, I have mentioned that before. I was living in Latin America for a long time. You have many, we always had small local players and teasing here or being already in the market for a long time and having leadership. What we see is that these players are developing very fast, going international, or are big in their own country and really sizable, and they're not opportunistic. They're starting to invest in R&D. They're linked up with universities. They have very good quality and very good management. We see new dimensions of competition coming in that are very strong. You have some countries that you're regional players, you're multi-billion already. We have to be aware of that, we should not be blinded by only the classical players and what they do only.
They're part of it, but we should have an increasing openness to these new competitors. I can tell you, they are fantastic. They're very strong. They have a capacity of attracting very good talent, be it in management or in R&D, and they do the right things. That's, again, an advantage of having a company that is so decentralized in decision-making because it is clear that the market head, somebody who's leading our presence in a market, in a country, is very close to that. Then the reporting back of what's happening, the monitoring that we can do of these people is very direct. There's indeed, the competitive landscape of our industry is changing and changing fast.
Pablo?
Yeah, thanks. Pablo Zuanic from Liberum Capital. Look, three questions. One, I want to go back to the theme of emerging markets, but can you help us put it in context? Okay, emerging markets is slowing down, but how bad is it really compared with 2008, 2009 or previous crises? The reason I ask that, from my perspective, it's a lot less worse than it's been in the past. I find that there's a reluctance or a reticence from a lot of consumer companies to take pricing in emerging markets in the middle of a crisis compared to other occasions. I find that particularly came across in the second quarter conference call and second quarter results, just less pricing.
I know you mentioned commodities, but I can go back two or three years ago, I think in a conference call, I don't remember if it was Jim Singh or Roddy said something like, "You cannot underestimate how much pricing we've taken in Latin America," and it was in the middle of a crisis. I'm just trying to understand how bad is it really, and if it's not so bad, why this reluctance to take pricing? That's one question. The second one, I want to, I guess, ask the L'Oréal question in a different way. Can we go back to Alcon and Novartis and Health Science?
When you divested the Alcon business, and I had just started to cover the stock at that time, when you divested the Alcon business, was that because there was an opportunity to buy something or because strategically you decided we want to sell it, and we have a good bid there? If you can just do some history there, just putting that in context. I guess the last one is maybe one for Ms. Martello. Is there a debt target? We make our own little projections in terms of cash flow, but is there a debt target in terms of a balance sheet efficiency that we should think of in terms of net debt to be down or other metrics that you would use? Related to that, when you think of dividends or buybacks, is there a preference?
If your dividend, if it's going to be an extraordinary dividend or a big share buyback program, a one-off, is there any preference taking into account, of course, shareholders' tax interest? Thanks.
Thank you for your questions. The first one, emerging markets and the slowing down, how bad it is, how deep is it, how structural is it versus history and the past, then the second question, pricing. As they have been growing so fast, in contrast with the developed market in crisis, the contrast was so huge, and the dependence for growth of the world was so important that it hurts now that they're slowing down much more visible. It goes straight into your face. I do believe the growth in the emerging markets is much more stable than before if you compare with the past. Two considerations. First, the contrast is showing it as worse than it is, because at the end of the day, they're still growing. They're still growing nicely.
We were used to more and would have liked more. There is some parts of that emerging markets that are going to re-accelerate to a certain extent. I hope not again to 15% and then slowing down again. I think growth in these markets are going to stabilize whenever we have stable political, social environment. That's one. Second, the stability of the growth in the emerging market is also linked with the fact that the emerging markets, in my eyes, are growing on their own terms. That's much different than in the past. In the past, the emerging markets were classified as developing by the developed world, and basically, that was the definition of you're behind us. Their whole growth was dictated and conditioned by the developed world. That has changed. In the developing markets and emerging markets, governments are going about their own future.
They have a lot of confidence and trust in themselves. They're starting to build their own structures. You see more stability politically speaking, and that is really refreshing. You see how they embrace their own natural resources and wanted to go for added value. You see how they really start to bind themselves together. That goes hand in hand with two phenomena. First of all, they really see the strength of going about economical development and how that is a stabilizing factor in their own countries over time. Secondly, there's also a link with the fact that the developed world has its own challenges. They don't say, "We're depending on them." They take their own fate in their own hands. There's actually a third one also. When a small country says, "I'm going to go about my future on my own terms," that's one thing.
When China says that, everybody listens. That motivates the others to do it. The stability of growth, in my eyes, and for the emerging markets, is linked with the more intrinsic internal growth, the building of middle class in these countries. Middle class, which is always a stabilizing factor in countries in general. I see definitely growth has softened after a huge acceleration that was contrasting even more, and we depended more about that, so it hurts a little bit more when it slows down. The fact that there's still a very recommendable rate of growth, and I do believe that's going to stay because it's more stable. Reluctance to taking prices. We're not taking prices for prices. We are not price hungry. We are creating value for consumers. We had to increase some pricing.
In the last years, you saw the spiking of many of our raw materials. You remember in 2007, actually, there was a major acceleration of raw material prices. Everybody says, "Can you price up to compensate for it?" We connected with you saying, "Well, these are spikes. We see an underlying line going upwards, but not to that extent. It came down again." You saw some fluctuations, some more fluctuation, bigger, higher fluctuation in raw material prices. Now, I see them coming back to the line we are tracing, and there's less need for increase in prices. We don't do that. Why should we? We are creating value. We have to be competitive in prices. We have efficiency programs driving costs out. We have lower input costs. That goes hand in hand. We are living in a competitive environment where that is relevant.
Are we afraid to take prices? I'm the last to say we should not take prices. When we need to take prices, we have to take prices because that is the substance of your business. If you have devaluation and you have cost inflation, we have to price. Actually, you see that. In Latin America, our pricing is higher than the rest of the world. In certain countries, even double digits. Why? Because if you have an environment like that where you need to price, because if not, your substance is fading away dramatically. We are not taking price decisions here in the center. We have people who are totally understanding the dynamics of pricing and the need for pricing in the markets, and they take the decision there based on different considerations, input cost, competitive environment, et cetera. That's how we work.
That's how then by aggregation, we have then one figure. It is by aggregation. If you go into the nitty-gritty, you have lots of differentiation and emerging markets where there is need for it, we increase prices. When not, we don't. Then on the debt target, now L'Oréal again.
It's not really about L'Oréal, right?
Alcon.
It's more history about Alcon.
Yeah. The reason why we invested Alcon, each business is another reality. Alcon at the time, Alcon has been a success story in its own right because it had a shareholder that allowed them in a business that need to be cocooned and have capital and cash. That is what we gave them. They have been growing, and it has been a success story, and it has got value in the market. We got a point that we say, is Alcon served by staying with Nestlé, where Nestlé only can give some size and cash protection or R&D was really driven by them and all that, or are they better off by somebody who may have an interest and who can drive more value out of it because they are in that segment and they can bring R&D capabilities, et cetera?
We got to a point where the crossing of the lines was really on value creation for Nestlé, the best point of crossing. That's why we sold off Alcon at that time. I think it is clear and the value was there, and you know what the value was. Each company has another dynamics and has to be judged on that dynamics, and Alcon was that dynamics. I'm not going to comment again on L'Oréal because we have all options open, as you have mentioned, and I would limit my comments on that.
Okay.
The debt targets? Well, a little bit brief. Yeah.
Yeah. I'll take that. I think it's Pablo who asked the question, right? Pablo, call me Wan Ling. Don't call me Mrs. Martello. I feel antiquated. That doesn't make me happy. On the question of balance sheet and debt target, we closed the year last year at net debt of CHF 22.2 billion, and we ended at the half year point at CHF 18.2 billion. We don't typically guide on net debt, but this is what I can tell you. We, as a company, are very comfortable at the double A rating. We also have guided that said this year, we do not anticipate any meaningful significant acquisition. We've always said bolt-on, bolt-on defined as CHF 300 million-CHF 400 million-ish. Here we're sitting on October 1st, and we've only done one this year, which is a very small one, Pamlab.
With three more months to go, we don't anticipate any. You can, without formally guiding, you can do the math and probably likely close the year at closer to last year's level or slightly below. In terms of dividend, we've always said, dividend versus share buyback. Our dividend policy is that of a sustainable policy. We pay our dividends always in Swiss francs. In the last 50 years, the number in absolute terms has never gone down. That is our commitment to our investors. We don't look at it on a payout ratio. We look at it on an absolute basis. Share buyback, we've always said it's more opportunistic to the extent that we have excess cash build-up. We will always look at that.
We don't have a program as we speak today, but that's something that's not off the table and something that we will obviously consider if the opportunity comes up.
Chris?
We spent a lot of time yesterday talking about Sorry, it's Hugh Reid from BlackRock. You spent a lot of time talking yesterday about nutrition, and it's obvious that as a food company, you have a very long duration of your brands and your product, and pharma companies have a much shorter duration of their product. They have to reinvent it much more quickly, more regularly. Are you concerned about that within Nestlé? Are you increasing the product risk within the business as you go more towards the nutrition and Nestlé Health Science business?
Well, it is clear that Nestlé Health Science has another dynamics than the classical food and beverage business. First of all, in the classical food and beverage business, you do have different dynamics, too. You think about, Nespresso is a good example there. It took us 11, 12 years, I think, before we got black figures. That's a long time. You have to be stubborn to get there, Or convinced, one of the two. It is clear that the timelines of flavors in certain products is easier to manage, and we have quite a lot of capabilities in that. But the Dolce Gustos, for example, is another thing that has much shorter timeline already because we have different timelines already. We have BabyNes, for example, that specific machine that in my eyes a fantastic offering, a fantastic value. It's going to take time. Why?
Mindsets, capabilities, quality of service that you want to deliver so you don't overdo it. You go to Nestlé Health Science and the timelines are much bigger. They're, you know that. The longer the timeline, the higher the risk. That's why we also said we have to pick our battles. You just don't jump in that ocean there because we have we have already CHF 2 billion business. We have already three platforms that we are quite close to, that we know a few things more. We have defined three others, brain health, and you have seen them. It is clear that these timelines are much longer. The size of the prize is huge. The risk is, in other words, slightly higher.
That's why also a company like ours has to go for more margin, too, because it's intrinsically linked to the higher risk that you're exposed to. This timeline per se, we want to have a short-term dimension to it, CHF 2 billion business we're already going well, and which is relatively close still to fast-moving consumer goods. We have the BOOST, for example, in the U.S. It is Nestlé Health Science, yet at the same time, the dynamics are still quite close to what we know and how to manage it. We brought in to accelerate understanding, we brought in some capabilities, and that's Prometheus or Pamlab, is to accelerate our knowledge and understanding there in that new area. We are working more with third parties also in the science base building up because this is so huge and vast and so deep.
In other words, we are combining now the size of the price. We are talking about healthcare. How actually the society of today is going about healthcare by going for sick care in corrective therapeutic dimensions. We know that food, and actually the Chinese, they call it the best medicine is food, that food can induce health dramatically. If we just would understand more how nutrients interact with the human body. I don't want to tell the whole story that surely Luis has shared with you, but that understanding, that conviction, is what drives us to do that investment. If somebody can do this, I think a company like ours should be there. Why? Exactly for what you say. There's high risk. There's more upfront payment to be done or investment to be done. Who can do that?
If we have a uniqueness of being able to do that, and not many would like to do this, you build competitive advantages. You see the opportunities, I'm convinced of it. You just have to engineer two words, the right solutions, and all that. There's a timeline and risk, not many are going to organize this. Then a company like ours should do that because the opportunity is definitely going to be there. That's a little bit the timeline we have. Actually, this whole Nestlé Health Science Institute, the setting up of the structure that Luis has been doing and all that, comes from the same P&L. We are actually delivering all that upside investment because we are driving very profitable growth on all the rest.
We don't say, "We're going to construct and build the future, give us a little bit of a break." I don't feel that would be fair. We have to be able to leverage where we are saving energy. We have to be able to do both wisely. Actually, that goes back to a fundamental conviction I have. A company like ours should be able to do innovation permanently. I call it the rolling innovation cycle. We are doing this because somebody else did something 10 years ago, five years ago, in innovation, paying or investing in something that gives now the cash so that we can do the same for the next generation. That is what we're doing. If not, you build anemia into your organization, and you still hang in the air, but you pre-stall, and we don't want to be there.
Big platform in the making, which is Nestlé Health Science, has a little bit of higher risk and longer time frames and more investment. We have to be able to do it. The upside is just too inviting.
Jon?
Yeah. Hi, Jon Cox with Kepler Cheuvreux. I'm just wondering on the North American market, Paul, I know you were a sort of regional head there. It looks a lot more challenging, and maybe it hasn't come back as much as people had anticipated. I'm just wondering, has there been any sort of structural change you think in the North American market? On top of that, what about your own business and how to reinvigorate that business somewhat?
You're totally right. It isn't challenging. It's slightly more challenging than we thought. Because of the external environment that is rebounding slower than we thought. We always said that North America has the characteristic of going to crisis faster, but bouncing back faster. Well, they went in fast. We're not bouncing back as fast. Still faster than Europe, but still less than we thought. In other words, it doesn't come back as fast as we thought. Because of some of the problems of our making, maybe. First of all, you have two differences in North America. You have fantastic businesses there, like Purina. Waters has done well, although challenged also because of pricing in the last quarters. We have good performing businesses, coffee, for example. Beverages in general is going very well.
You have Coffee mate is going very well, strong growth of the whole category that is induced by the innovation that Coffee mate is bringing, and we are building more and more strong even market shares in spite of many other players trying to get a bit of it. We have many underlying things. We have actually also in frozen, if you think about Stouffer's. Stouffer's is doing well. Lean Cuisine is suffering. Lean Cuisine, these are business categories that changing or inducing new innovation that drives the business is a little bit slow always. For example, again, Chef America with Hot Pockets is doing well, although that was something that we had to re-engineer a few years ago. You have many underlying things that's going well.
Others that I feel we have to inspire or restructure or, not restructure, but having better innovation. Certain parts of the business in the U.S. had a little bit of a weakness, I would say, of what I just mentioned, this rolling innovation. When you go for the short term in certain categories to try to save the day, you build in an anemia in certain categories. That is something we are now reverting with some upfront investment. We have restructured already quite a part of the business also structurally, to free up resources to put behind the brands, to be able to finance innovation. Because we had quite a lot of innovation that was not really supported in the right way and long enough with consumer-facing marketing spend.
We have a change of leadership, the change of leadership is on new angles that are, in my eyes, is going to drive better value in North America. I'm very positive for North America, for Nestlé, and for North America in general for the years to come.
Jerry?
Jeremy Fialko, Redburn here. Can you talk a little bit more about the structural efficiency improvements that you spoke about earlier? It's obviously something which all companies aspire to do, faster decision-making, more flexible structures, et cetera. Can you perhaps talk about what's different about this time that you're looking at it? Are there any examples of some specific actions that you have taken so far? I guess as a result of this, do you think that you can achieve a sustainable year-on-year reductions in your overhead costs as a percentage of sales? Thanks.
It's always difficult to be very specific when you speak structure, then you see the whole structure, what are we going to do there, et cetera. First of all, what we're going to do is, we have organizational principles that we have defined a few years ago, like what is a market head's role? Our decentralization as a first chance. What is the role of a market head? The market head is local managed business. What is the role of a regional market head who is managing a region? What is the role of a global managed business? How is that global managed business intertwined or linked up with the local dimensions? For example, HR issues or regulatory issues. We have defined all these things a few years ago, we have defined the role of the center and the strategic business units.
What is the authority of a global business strategy? When we have something like a Nescafé brand or a brand essence, as we use to call it, how strong is that authority? If we have a strategic option that has been discussed in the general management, how strong is that imposing into the markets? How is the decision-making process? How is the rollout of new innovation? How is the link between R&D and strategic thinking in the strategic business units and the markets? How is that triangle going and the zones? All these things have been defined at the time, and has been actually never something like, "Oops, we invent something new." It is evolutionary always. We always tune these things and adjust and adapt.
We have defined how we are interlinked, global has been a tremendous enabler to link us up in a much more transparent way and faster way. We have introduced NCE, and we have mentioned that, is very strong in operations in the physical dimensions of our value chain. We are driving and rolling it out in the softer parts of our organization, like HR, like finance. What does it mean? How fast is it going? We know it's much harder to drive an NCE discipline through the softer part of the organization, but yet we have to do it. These are the dimensions. How are we linked up with the fact that we have millions of emails a day to be read by people? I feel this is totally necessary.
How about not having an email dimension in our company and having platforms of communication like the new tools allow? Some companies have decided no emails anymore. How about the fact of having so much travel and seminars that we have that are normally part of our landscape? For example, we have in this center, we have 120, 130 times people coming from the markets all over the world here for training. That's good investment. We're going there, the general management goes there to interact. That's the leadership of the future, so we invest in people. We have 300, 350 other meetings here, sitting full of people coming, that's flying, that's around, and do we need that? These are the things we're talking about. You see?
I'm fighting for one-pagers, and it's approved that I have no authority in this company because you don't get there. Many are doing it, still too many long memos, long things. We have too many no-sayers in an organization like ours. It's easier to say no, who is responsible? Who takes all these dimensions? If you think about it, I don't say we're going to reschedule and rebuild the whole building and they're just going to challenge the fluxes we have, the fluxes of information, the fluxes of how we decide.
We have global business strategies, that is an SBU who is actually the knowledge platform of a product category in the world, in the Nestlé world and in the world, who through knowledge, understanding of all the markets and the dynamics of that category in the world, is actually with the markets, is defining a global business strategy. We call it GBS. That is a GBS for example, Nescafé. That is saying, "Nestlé, what do we want to do in the next so many years?" With the nuances of different dynamics of different markets and all that is a GBS. You have some conclusions. We decide on that. General management is involved saying, "Okay, what is the follow-up on decisions that are inherent to that approval? Is the discipline there?
How is that translated into the market business strategies?" Every year, a market comes and says, "In the midterm, I think Nestlé should do A, B, C, and D in this market and put the resources more here and do that, the priorities." Is there a link between that matrix that is efficient, fast, and disciplined enough? I know that we have been working on this, and I know there is lots of efficiency already. I see upside. What is the authority of a good idea in this company? Good example, Dolce Gusto. Used and abused already as an example, but allow me to use it again. Dolce Gusto is a concept that 10, 15 years ago would not have flown like it has flown now lately. It is a CHF 1 billion business now. It has rolled out over whole Europe.
In four or five years, we have been in every country in Europe, basically. That is the authority of a good idea. How is that going? We have that example. We have some more examples, but I would like to have more. Although we are very decentralized in decision-making, it should be consumer-relevant decision-making and consumer-relevant differentiation in the market, not ego-defined differentiation. You know we are a company, and we are people, and we have ego hubs. We have to see and analyze that a little bit more. I do believe that in a globalized world, with all the differentiation needed because food is local, global ideas should walk faster and broader. That is an upside we have. That is where then our size starts to be translated in scale again.
That is when we are going to have R&D really motivated to do things, because what comes out of it is rolled out broader and faster. We are going to have competitive advantage because if we launch a new concept in one market, and it takes us five years to get to the other market, competition is before us. That is what we say about structural efficiencies, decision-making, roll-outs, fluxes of information, paper, meetings, travel, all these things. Maybe we may say that that structure that we defined five years, six years ago, has some tweaks to be done on it because it does not work, really. That relationship does not work or is doubled. That is what we want to do. How are we going to do that? We are not going to bring in a whole bunch of very smart people.
I'm going to put somebody on this who has a good mind, who knows this company in and out. He's going to drive this with me. I'm responsible for this. He's going to help me to be responsible together with the executive board, together with them. In other words, that's my job to do that together with the executive board. I'm going to have somebody who helps to drive that project, to really go and ask the right questions. He's going to do that together with the structures we have. If he needs some transparency, he goes to Wan Ling . He's going to have the resources there to get that transparency. We have built that in. That's the way we're going to do it. It's going to be something that is going to, I'm sure, creep in.
It's going to go hand in hand with NCE beyond operations, too. At the end of the day, Nestlé Continuous Excellence is going to give us some discipline and tool work to drive then all what we see and insights that we get there to drive that through the organization and in a more organized way. What is the upside of it? I think it is, I'm the first to say, whatever organization, you can always leverage it up by quite a percentage. I think we can grow quite over the next years. We should be able to grow with the same structure over the next years. How much is that? I don't know. It's 30%, 10% more efficiency out of this building. If you shorten the meetings by half, it's 50% already, so it's 100%. Think about it.
I want to go very to the nitty-gritty now, but think about meetings, because that's how you have to show how efficiency is all over the place. It's all here, potentially. We have meetings where we have 10, 15, 20 people. We have a tendency of many people, everybody involved, it's happy-go-lucky. If you think around the table, half of the people should not be there. Is somebody who is leading that meeting saying half of the people sitting here should not be here? No, we don't. We are a very sociable, likable company. Sometimes people are sitting there because the person who is relevant to the topic of the meeting, well, he's the boss of that person, and on the other side, you have somebody on his level. You know how people are. The meeting starts 10 minutes late.
Ten, 15 minutes multiplied by 10 is quite a lot of time. Is somebody really leading a meeting saying, "The purpose of this meeting is A, B, C, and whatever is discussed that is trading away from it, not allowed." Do we do that? In other words, if you think about it, half the people out, half the time to do the meeting, it's already 25% of the time. You understand? You think about it. The upside in an organization with the complexity we have is tremendous. It's tremendous. I know a social organization like Nestlé cannot work with that acuteness of 25% only. People are people, sociable, they talk about football or something else for a few minutes. Still, I do believe there's a high upside. I still read too much paper.
I still read too long emails, you know what I mean.
You mentioned that one of your areas of focus is to be more intimately involved with the consumer and stakeholders. In some categories, such as baby food, you're restricted in getting more intimately involved from a marketing perspective. In some other areas, say, adding micronutrients into your PPP foods, it might distract from the brand messaging in traditional media. I'm just curious to hear a bit more detail on how you are working on ways to more intimately engage with the consumer and make sure that they are valuing everything that you're putting into the business the way you would hope they would.
Let us make a distinction. First of all, when I say value what the consumer values, and that's consumer. In our roadmap, you see consumer engagement as one of the operational pillars, and that's why digital and social media is part of that, too. That's talking about our products, talking about our company, how we go about business, because the consumer is not only asking benefits of the product, who is behind it. That's engagement, deep engagement with consumer. It is going from unilateral communication to conversation. Digital comes in there. The consumer lines, telephone lines, all that is there. That's consumer. I said this, we as a company, as one of the priorities, is to engage deeper with communities and stakeholders, which is the other part, which is being a citizen in the society.
You know that more and more as the society is more, and specifically in certain parts of the developed world, and some parts in the developing world, but specifically developed world, many, many stakeholders are questioning and challenging on many areas, many issues like sustainability, what you do about certain ingredients you use or the supply chain and cocoa and the farming of cocoa, or is it with the infant formulas? We as a company, we have to accept that dialogue much more proactively. We had many, many good stories to tell at the time. We didn't engage, though, because we are a little bit like a company that I always show this. We have so much reality and only talk like this. You have some other companies that have so much reality and talk like that.
We're never going to talk more than reality, but we should talk slightly more than we are doing because we have so many things to connect with, to talk about, there's so much effort being developed in many areas that are of interest to society. They should know about that because they're asking it. They're asking the questions. We said, "How do we do that?" We said, at the end of the day, all what we do is so intimately linked of what we have been doing ever since. We are completely convinced that a company can only be successful when it connects positively with society. We call it Creating Shared Value, which is the economic activity of every company, of every economic element in society should create value for society, too.
When you think about milk districts, you think about putting a factory in a God-forgotten place and having hygiene, safety rules, education, it radiates added value for society. Why? Because we are a company that thinks long term, long term linked with respect. When we engage in a society, we don't hit and run. We commit, we are part of that society, we are locally involved, we stay there for the long term. Hence, many times I go now in countries, it's 100 years of Nestlé in a country B, as country C. That is how we go about it. That is what I meant by intimately connecting with the communities and other stakeholders and engage in discussion. We are a little bit reluctant to do that because we felt only criticism coming.
It is clear that when we have many stakeholders, they see society from a certain angle, they want to reinforce that angle, say, "That's important. Don't forget that angle, too." It's clear that when you have an unilateral angle, it's always harder to engage because we are living more a 360 world as a company and have engagement with the customers, with people who are 50 degrees only. That's how it goes. We have been doing that much more intensively. The Creating Shared Value concept is something that we have been putting out there more explicitly. We have been documenting that. We have had forums that we share with society, be it academic, be it societal, be it NGOs, be it the local authorities, just to show and to communicate how we go about our role in society more proactively.
That goes hand in hand with consumers, because at the end of the day, consumer is asking, "Well, what is the company?" We enforce that from both sides. That's why we also share with you a little bit sustainability, because sustainability-- you see, social responsibility and Creating Shared Value is not a product that we want to sell. Sometimes the society pushes you in a corner of that's like a product you sell. It's like something you do on top of what you do. That's not true. That's not how we see these things like environment, like stakeholders engagement, like being part of social, of local communities. It's not after certain. It should be intrinsically linked with our activities, that's why you saw also the sustainability efforts. It's linked with how we operate, how we are, how we define.
It's sustainable by design, it's sustainable by conviction, it's sustainable by investment. It should be linked through the whole value chain, we don't want to have just a showcase stuff. It should be everywhere in our organization.
One last question.
Hi, it's David Hayes from Nomura again. Over the last couple of days, we've kind of picked up again that you seem to have this competitive advantage from vertical integration and partnerships with suppliers. Would you say it's true that that's an advantage during inflationary periods of time in terms of raw materials, which you talked about you've seen in the last few years? Does it become a disadvantage in terms of seeing the offset when you see a deflationary period like we're seeing more now? Thanks.
Well, what is your question? Is it a statement or a question?
No, no, it's a question. The question being, do you feel that vertical integration that you've got through these partnerships is an advantage during inflationary periods, and you have a competitive advantage that you've enjoyed effectively, and that is less of an advantage because you don't get the relief on the deflationary side. I guess to extend that, do you see that as an advantage competitively on the longer term because you see on the longer term inflationary pressures for raw material costs? Thanks.
I'm sorry. Your question is, being integrated means we are owning more part of the value chain?
Exactly. You're vertically integrated.
No, we are not.
It feels like you are more vertically integrated with suppliers, with the sustainability we've looked at, and the other comments we've had through the last couple of days.
Right.
Is that a significant competitive advantage?
Sure.
Has it been so more the last three years?
Well-
In inflationary times? Is it less so now? Thanks.
We are indeed very much integrated through relationships, we don't own a cow. If we own a cow, it is more for experimental things to see how a milk district works and all that.
I'll be a nervous cow when I can.
We don't have coffee trees giving us coffee, we are very much integrated. Even more so that we say, the coffee trees quality is going down. They are not taken care of to the extent that we should because the prices were down many years ago, et cetera. We do have oversight, not oversight, insight of the whole value chain and see then also what we have a little bit of an insight in the cost structures and the evolutions of prices. We are engaged, yes indeed, with 700,000 farmers directly, and many in the milk districts, but also in other areas. That gives you insight. You have lots of antennas.
We have 1,200, I think, agronomes on our payroll working with these farmers and working with others, or we have relationships with huge companies that do an important job on the upstream of agricultural materials and working in partnership also in R&D and development with these people. Yet at the same time, downstream, we have customers and working more intimately with them. We go to mom and pop store. You say, but you speak about more upstream. Do you have a cost advantage having that? Insight is a cost advantage. Insight, not ownership per se, it's the insight and the scale of that insight and the globalness of that insight that we want to leverage. That's how we see lines of cost increases over time, how we manage around this, how we can then hedge meaningfully and operationally that serves our operation. Why?
It creates stability of pricing and costing. You cannot handle a business like Nestlé if you allow all the volatility of some raw materials just being played in every market. We do that more centrally. All these things are our advantages. I would say it's insight advantage, definitely. It anticipates you induce more stability in the management of your reality through that insight, definitely. It also secures. With the size we have, it secures also raw materials directly or tangibly. If we have, like we have been communicating, distributing small plantlets of good coffee trees that have higher yields and less need for water and more disease resistant, well, that's a direct impact in having enough supply. It is totally, I would say socially responsible because at the end of the day, you give something for your own interest again.
At the same time, you create value for society because you create better quality, better yields on the same square mile. These are the things that helps us. It's clear that these relationships are, in many instances, not even binding. We have seen over and over again, and I speak from firsthand, that many relationships are not only on financial terms, they are really linked on being part of a society or a community for the longer term and being trustworthy. Trust at the end of the day is the most precious thing that we have, and that's what we care for. That is linked to suppliers, customers, consumers, society, and global. Well, I think one more question or
No.
No? No. He says no. Okay. Thank you. Thank you very much for good questions. Thank you.
Thank you.
Just two words more. I only can stress we have organized this program around nutrition and nutrition of our wellness and what it means actually. I can only stress the value potential of that agenda is tremendous, and that's why we have organized these two days with you here a little bit around this. I can only stress also remember the three things I have on my desk, and I'm really going to go after them, and I do see also quite a lot of potential there, too. Looking forward to be communicating that to you, too, later on. Thank you very much for your presence, too, and interest in our company.
Please, we're getting the first part